What do you do when your e-commerce ads aren’t profitable? Most people throw darts at the wall, which is the wrong way to go. In this post, we’ll talk about systematically fixing your funnel as well as a powerful metric that nobody talks about.
All posts in Metrics
Qualities of a Strong D2C Company, Quality #1: COGS
After working with 50+ D2C companies on acquisition, it’s clear that the strongest ones have a few common characteristics about them.
Over the next series of posts, I’m going to go over the characteristics of each one and introduce a model around them. Actually, they’re more akin to dimensions than characteristics, because there are tension between many of the qualities that make for a strong D2C company.
For example, AOV and CAC (as a percentage of overall LTV) are two different qualities that determine the strength of a D2C’s company’s long term viability. However, there are tensions between the two; as price increases, so does the overall population of customers willing to pay that price. The smaller the population, the higher the marginal cost for each additional customer, and therefore the higher the CAC.
The E-Commerce Metrics You Need to Master Facebook Ads
Any time I hear conversations about the miraculous power of Facebook and possible the “tricks” of the trade, they tend to revolve around the sexier aspects.
Things like Facebook’s ability to target users in almost-scary fashion (something something Cambridge Analytica) or characteristics that make a good creative usually take center stage.
Rarely do I hear any talk of metrics in these conversations. And for good reason. Sure, if you’re a true geek, metrics may be exciting. But most people would rather watch an egg boil while doing jumping jacks on lego blocks than master an understanding of metrics.
CAC (Customer Acquisition Cost) vs. RoAS (Return on Ad Spend)
When it comes to acquiring customers, there are two metrics that people turn to in order to judge performance: CAC (sometimes also referred to as CPA) and RoAS (return on ad spend).
People tend to care much more about one than the other. Anecdotally, it seems that this preference is based purely on the marketer’s experience: marketers who worked in the trenches of affiliate digital products tend to prefer CAC, while newer marketers that got their start with Facebook ads tend to prefer RoAS.
I’m going to go through each one’s strengths and weaknesses so that you can determine which you should be leaning on.